by Tim Fox, Montana Attorney General
Every April brings collective dread as Tax Day approaches and we all must work our way through the maze of rules and exemptions. Just about everyone agrees that tax law is far more complex than it should be. Unfortunately, for Montana businesses, it could get a lot worse.
A case currently before the United States Supreme Court called South Dakota v. Wayfair could make it a nightmare for Montana businesses to comply with our nation’s complicated tax system. This complex case is important to every Montanan. That is why I filed a brief on behalf of the state to protect Montana businesses and defend our decision to reject a sales tax.
A lot of Montana businesses sell their goods online, often to supplement sales in their retail stores. For example, the Huckleberry Patch is a small business that sells huckleberry products in Hungry Horse. Although their shop sits a few miles away from the West entrance to Glacier National Park, the Huckleberry Patch has a website and ships their products around the country.
Fifty years ago, the U.S. Supreme Court established a rule making it feasible for businesses like the Huckleberry Patch to sell its products to customers in other states. The Court said before a state could force a business to collect another state’s sales taxes, the business had to have a “physical presence” in that state. That means the business must have a branch office, employees, a warehouse, etc.
It made sense then, and it makes sense now. Montana businesses shouldn’t have to become experts in every state and municipal tax law in the country simply because people from other states are buying their products.
The South Dakota law currently under review by the Supreme Court is a perfect example of tax law gone awry. South Dakota’s taxing scheme would require any business engaging in online sales exceeding 200 transactions or $100,000 to collect South Dakota’s online sales tax. If someone in South Dakota searches for “huckleberry products” online, finds the Huckleberry Patch, and buys one of their $1 huckleberry lollipops, the business must start tracking every sale to South Dakota residents. As soon as the Huckleberry Patch sold 200 lollipops, they must start collecting sales taxes for South Dakota, even though only $200 worth of merchandise was sold to its residents.
Forty-one states have already indicated they will pursue tax laws similar to South Dakota’s if it is upheld by the Supreme Court. Imagine if every state and locality had its own threshold and rules for when a business had to collect taxes. Montana businesses would need to track their online sales in potentially 10,000 or more state and local taxing jurisdictions that exist around the country. Worse, many laws could conflict with each other, and all could harm Montana businesses.
Montana businesses are models for hard work and ingenuity necessary for a successful enterprise. But requiring these businesses to act as tax collectors for multiple states, cities, and counties is too much. The Supreme Court has an opportunity to protect businesses and consumers from onerous taxing policy by upholding long-standing law. While the Court considers this case, I will fight to make Montana’s voice heard.
Tim Fox is Montana’s Attorney General